Egg cracks the market for credit card fees

When tackled about their sky-high interest rates and punitive penalty charges, UK credit card companies often argue that, unlike plastic providers in many other parts of the world, they do not impose monthly fees.

All that could be about to change, however, with the introduction of a new cashback card from internet bank Egg that charges a £1-a-month fee.

The Egg World Money Mastercard is available from July 14 and offers 1 per cent cashback on all purchases from almost 30 million Mastercard outlets around the world.

Its launch has prompted fears that other lenders will introduce monthly fees of their own.

Peter Harrison at price comparison website Moneysupermarket says: “Egg is the first major credit card provider to introduce monthly fees, and this is only the tip of the iceberg. We are likely to see more providers follow suit as they try to claw back profitability.”

Analysts also point out that, while the fee is set at a low level now, Egg could increase it at will in the future.

Andrew Hagger of market analyst Moneynet says: “At £1 per month, this fee is not out of line if you are going to make full use of the cashback offer. But once you start paying a fee, it is just another charge that providers can choose to increase at a later date.”

‘Once you start paying a fee, providers can increase it’

The amount you can earn in cashback on the new Egg card is capped at £200 a year but the card also offers customers with debts built up elsewhere the option of a balance transfer at 8.9 per cent for the life of the balance, with no balance transfer fee.

Other benefits include 90-day protection against theft, loss or damage for all purchases worth more than £75 and a 12-month additional warranty on electrical goods costing more than £50 and bought using the card.

There is also a price-promise feature under which Egg pledges to refund the difference should you find an item costing more than £50 cheaper locally within 30 days of making a purchase.

Egg chief executive Bert Pijls says: “Egg Money is for people who want to earn cash back from either everyday spending or expensive purchases, to have certainty in their transfer rate and to be protected at the same time.”

However, there is no point taking out the Egg card in the hope of getting the combined benefits of the balance transfer offer and the cashback feature, as you will lose out owing to card firms’ policy of using your repayments to clear your cheapest debts first. While the cashback deal may seem generous, you can get a better return with American Express.

Its Platinum Card does not charge a fee and pays an introductory 5 per cent cashback, up to a maximum of £100, in the first three months. From then on, you can earn 0.5 per cent on the first £3,500 of spending, 1 per cent on between £3,500 and £10,000 and 1.5 per cent for more than that amount.

The advantage of the Egg card is that Mastercard payments are accepted by more shops and restaurants than those made on American Express cards.

But to make the most of this deal from Egg, you will need to spend an average of £1,670 each month to get the maximum £200 back.

It is also worth noting it is only worth taking out a cashback card if you pay off your balance every month. Otherwise, the interest you pay — 16.9 per cent with the new Egg card — will wipe out the benefits.

When it comes to the balance transfer deal at 8.9 per cent, both Barclaycard Simplicity at 6.8 per cent for the life of the balance and Leeds Building Society’s credit card, which offers a life-of-balance transfer rate of 5.9 per cent, are better options.

If you have a good credit rating, you may also qualify for one of the 0 per cent balance transfer deals available — although with a balance transfer fee of between 2 per cent and 3 per cent of the debt being switched across.

Virgin Money is marketing a 16-month balance transfer deal, while Santander has a 15-month 0 per cent offer.

Harrison says: “As a general rule of thumb, anyone planning to pay their balance off in full within two years would pay less with the Virgin credit card.”

Those looking to consolidate their debts may find a personal loan a better option, especially with rates starting from about 8 per cent at the moment.

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